Legato shares drop as Q3 disappoints

MOUNTAIN VIEW (CBS.MW) -- Shares of Legato Systems fell 20 percent Thursday after the company missed analysts' consensus estimate Wednesday and reported a loss for its third quarter, following an almost $14 million loss in revenue.

It also said it expects revenue in the fourth quarter to be generally unchanged from the third quarter.

Legato shares fell $2.30 to close at $9.50. The stock is trading near its 52-week low of $8.13 reached on Aug. 17.

After the market closed Wednesday, the enterprise storage management provider
LGTO
said its third-quarter loss, excluding one-time charges, was $1.1 million, or 1 cent per share vs. net income of $1.4 million, or 2 cents a share a year ago.

Fifteen analysts polled by First Call were expecting the company to break even for the quarter.

New licensing terms introduced at the start of the quarter were "very successfully received," said Louis Cole, the company chairman of the board.

"The result is a more rapid movement toward a recurring revenue model than we had expected," he explained. As a result "the reported revenue related to these contracts is lower than with previous contracting methods," he said.

On the upside, deferred revenue rose by about 10 percent from June 30 to Sept. 20 of this year.

Revenue and Q4 expectations disappoint

However, third-quarter revenue was pegged at $54.2 million, down from $67.9 million in the year-ago period.

Christopher Galvin, an analyst at Chase H&Q had expected the company to report revenue of $60 million.

In a conference call late Wednesday, Chief Financial Officer Andrew Brown said the company expects total volume of business activity in the fourth quarter to be greater than that in the third quarter.

"We believe this will result in reported revenue in the low $50-million range with an addition to the deferred revenue balance greater than that in Q3," he said, implying that Q4 revenue will likely be unchanged from Q3.

Brown and Chief Executive David Wright had just been appointed to their posts earlier this month. See full story.

Legato's management predicted flat quarterly performance for Q4, said Galvin, who has now lowered his fiscal 2000 revenue estimate to $227 million from $240 million and loss per share to 2 cents from previous expectations for a per-profit of 2 cents. He maintained his "market perform" rating on the stock.

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